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B.C. Court Confirms Powerful Maritime Arrest is Widely Available in Disputes Involving Maritime Assets

By Daniel van den Berg (Summer Law Student)  |Bryan Hicks
May 31, 2016

In Avina v. Sea Senor (Ship), the British Columbia Supreme Court (Court) upheld the arrest of the ship, Sea Senor (Vessel), in a dispute between the two shareholders of the company that owns the Vessel. The defendant applied to set aside the arrest on the basis that the underlying dispute was primarily a shareholders dispute, and therefore did not engage the Court’s maritime jurisdiction to arrest the Vessel. The Court’s decision to uphold the arrest is a helpful reminder that the harsh remedy of a maritime arrest is broadly available in disputes involving maritime assets.

BACKGROUND

In early 2012, Oscar Avina and Lenic Rodriguez entered into an agreement (Agreement) under which they agreed to purchase the Vessel (a 34-foot yacht) through a corporate entity, Sea-Chariot Holdings Inc. (Sea-Chariot). The terms of the Agreement are disputed in the underlying action. However, it is not disputed that:

  1. The Vessel is owned by and registered to Sea-Chariot
  2. The Vessel is Sea-Chariot’s only asset
  3. Rodriguez is the majority shareholder of Sea-Chariot
  4. At all times, Rodriguez has been the sole director of Sea-Chariot

It was also the parties’ intention that each of them would contribute to the Vessel’s purchase price and maintenance costs, and that both of them would have access to the Vessel for personal use.

By 2014, the relationship between Avina and Rodriguez had deteriorated. Rodriguez took the position that Avina breached the Agreement by failing to make various payments that were owing to Sea-Chariot, and that Avina therefore became disentitled to access and use the Vessel. Rodriguez then moved the Vessel from its moorage in Vancouver to Bowen Island (located in Howe Sound near Vancouver) and prevented Avina from using the Vessel.

THE ARREST

Avina commenced an action against Rodriguez and the Vessel claiming a beneficial and legal ownership interest in the Vessel, among other things. Avina also caused the Vessel to be placed under arrest, which prevents Rodriguez from using, moving, or selling the Vessel.

Rodriguez then filed an application for orders setting aside the arrest on the basis of want of jurisdiction. Rodriguez argued that there was no basis for the Court to exercise its maritime jurisdiction to arrest the Vessel in this case since the issues raised in the action amount to a shareholders dispute. Rodriguez argued that the dispute was not rooted in maritime law given that Sea-Chariot is the sole owner of the Vessel so there could be no dispute as to its ownership, title, or possession.

Avina filed his own application seeking orders for a judicial sale of the Vessel and for the sale proceeds to be held in trust pending further order of the Court or agreement by the parties.

On the issue of jurisdiction, the Court confirmed that it may exercise maritime jurisdiction to issue an arrest in any claim for relief “under or by virtue of Canadian maritime law or any other law of Canada relating to navigation and shipping.” Stated differently, in order to invoke the court’s maritime jurisdiction, there must be substantive maritime law to support the claim. The Court also confirmed that maritime jurisdiction undoubtedly exists where the claim falls within any of the specific heads of maritime jurisdiction set out at section 22(2) of the Federal Courts Act.

The Court determined that the relief sought by Avina in his notice of civil claim, which included “a declaration that the Plaintiff has a 50% beneficial and legal ownership and interest in the Vessel” was sufficient to bring the claim within the Court’s maritime jurisdiction under subsection 22(2)(a) of the Federal Courts Act

The Court concluded that the validity of Avina’s claim was a matter for trial, but that the claim was rooted in Canadian maritime law. Accordingly, the Court determined that it had maritime jurisdiction and the arrest was upheld.

The Court also dismissed Avina’s application for a sale order on the basis that Avina failed to establish that the Vessel’s condition was seriously deteriorating or that there was any risk that its value would be insufficient to satisfy Avina’s claim if he were ultimately successful in the litigation.

Rodriguez initially sought to prevent Avina from using the Vessel. As a result of the litigation and the arrest, both parties are now prevented from using the Vessel, which will presumably continue to incur moorage and other costs until the dispute is resolved either through litigation or a negotiated settlement, or until Rodriguez or Sea-Chariot provides sufficient bail to release the Vessel from arrest.

IMPLICATIONS

This decision is a helpful reminder that the harsh remedy of a maritime arrest is widely available to plaintiffs in disputes involving maritime assets. Courts will be reluctant to set aside an arrest for want of jurisdiction if the plaintiff raises issues of maritime law in its pleadings. Indeed, the circumstance in which a court may set aside an arrest before trial and without bail are rare. For a discussion on when an arrest may be set aside, please see our April 2015 Blakes Bulletin: Freeze, Ship – You’re Under Arrest: Former Warship Now Underwater Following Court Order.

An arrest can provide significant leverage to a plaintiff since it will tie up the asset or force the defendant to pay bail to have the asset released from arrest. There is also very little risk to a plaintiff in obtaining an arrest, provided this is done in good faith. Unlike certain types of court injunctions, plaintiffs are not required to provide an undertaking for damages before placing a vessel under arrest.

For further information, please contact:

Bryan Hicks                              604-631-5227

or any other member of our Litigation and Dispute Resolution group.